Question
Brealey Domestic Equity Fund Ltd sells two types of share, A+ and B+. A+ shares are sold with front-end load fee of 7% whilst Type
Brealey Domestic Equity Fund Ltd sells two types of share, A+ and B+. A+ shares are sold with front-end load fee of 7% whilst Type B+ shares are not subject front-end load fee but are charged to investment management fee of 1.5% per annum as well as exit (back-end load) fee that start at 14% and reduce by 2% for each full year the investor holds the portfolio (until the th year). The annual rate of return for both types of share is 20%.
(a) Calculate the value of a Rs 35,000 investment made by investor Mr Laurent Halpin in Type A+ shares if the shares are disposed after (i) one year and (ii) 6 years.[ 8 Marks]
(b) Calculate the value of a Rs 35,000 investment made by investor Mrs Ava Halpin in Type B+ shares if the shares are disposed after (i) one year and (ii) 6 years. [14 Marks]
(c) As an analyst, which types of share will you recommend the investor to buy? [ 3 Marks]
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